India crypto policy 2026: RBI, tax dept push tighter curbs

Policy clarity still elusive

India’s cryptocurrency policy remains unsettled, but recent internal documents and parliamentary discussions point to a consistent direction from key authorities: tighter restrictions on digital assets. Documents reviewed by Reuters indicate that the Reserve Bank of India (RBI) continues to favour an approach “leaning towards prohibition.” The Income Tax Department has separately raised concerns about the practical difficulty of monitoring trades routed through overseas exchanges. Together, these positions reinforce why New Delhi has so far relied more on taxation, compliance checks, and limited oversight rather than a full regulatory framework.

At the same time, lawmakers are preparing a report on the country’s digital asset policy, keeping the question of whether India will regulate, restrict further, or attempt a prohibition-like approach in active debate. Multiple agencies have highlighted risks ranging from enforcement gaps to alleged illicit activity across parts of the virtual digital asset (VDA) ecosystem. The combined messaging is clear: policy will be shaped as much by enforcement feasibility as by financial stability concerns.

RBI reiterates a stance “leaning towards prohibition”

According to the May and June documents cited by Reuters, the RBI has repeated its long-standing view that India’s crypto policy should be “leaning towards prohibition.” The central bank’s emphasis is on shielding the regulated financial system from direct and indirect crypto exposure. In particular, the RBI view is that banks and other financial institutions should not be allowed to hold, trade, or have exposure to cryptocurrencies or privately issued stablecoins.

The RBI’s preference for restriction also extends to the use of crypto in payments and settlements. In a background note presented to a parliamentary panel, the central bank reportedly recommended preventing crypto’s use for payments and settlements while restricting banking-sector exposure. RBI officials also warned that applying traditional regulation to crypto could give speculative assets a form of legitimacy. That, in turn, could create a false perception of safety among users.

What the parliamentary panel heard from RBI officials

The Economic Times reported that RBI Deputy Governor Rohit Jain and Executive Director P. Vasudevan presented the central bank’s position to the Parliamentary Standing Committee on Finance. The RBI’s submission to the panel reportedly framed “prohibition” as a recognized policy option. It also advocated a containment strategy designed to limit spillovers from crypto markets into the banking and financial system.

This presentation matters because it places the RBI’s cautious view directly into the legislative consultation process. While India’s official stance has often been described in terms of taxes and compliance, the parliamentary briefings show that financial stability and payments integrity remain central concerns. The RBI’s position also aligns with earlier warnings that crypto lacks an underlying asset and can expose investors to high risk, a point repeatedly cited by Indian authorities in earlier public comments.

Income Tax Department flags offshore monitoring blind spots

The Income Tax Department’s concerns, reflected in the Reuters-reviewed documents and in local media reports, focus on enforcement. Officials believe transactions carried out through offshore crypto exchanges are difficult to track. This can hinder monitoring of tax compliance and increase the risk of tax evasion.

The Times of India reported that tax authorities highlighted how anonymous, borderless, near-instant value transfer can enable movement of funds without regulated financial intermediaries. Officials also flagged that offshore exchanges, private wallets, and decentralised platforms can make it difficult to detect taxable income and reconstruct transaction chains. Jurisdictional limitations were cited as a major hurdle, particularly when multiple jurisdictions are involved and verification or recovery of dues becomes challenging.

VDAs classified “high risk” in intelligence briefings

In a briefing to a parliamentary panel, senior officials said the VDA ecosystem has been classified as “high risk,” with intelligence reports flagging widespread illicit activity. The cited risks ranged from drug and human trafficking to radicalisation through social media, high-value crypto transactions in sensitive locations, and money laundering. Authorities also flagged typologies such as money laundering through peer-to-peer (P2P) channels and exchanges, fake crypto platforms, and Ponzi or MLM schemes.

Officials also pointed to links to serious crimes including narcotics trafficking, smuggling, and the circulation of child sexual abuse material, along with emerging risks like terror financing, cyber fraud, and VPN-based transactions. These inputs are being used to justify tighter reporting obligations and closer scrutiny of market intermediaries. The emphasis in these discussions is not only on investor risk, but also on the operational burden of policing cross-border and pseudonymous flows.

Compliance gaps: TDS base vs tax disclosures

A key data point presented to the parliamentary panel highlights the compliance challenge. While 6.45 lakh individuals were subjected to TDS on crypto transactions in FY23, only 1.39 lakh disclosed such income in their tax returns. Officials treated this gap as an indicator of significant non-filing and misreporting.

Separately, the government has already put a tax framework in place even as it remains cautious about recognising cryptocurrency as an asset class. Publicly reported measures include a flat 30% tax on VDAs and a 1% TDS on sale consideration. Authorities have also pushed for registration of entities dealing in crypto and other VDAs, with concerns that many exchanges operating overseas may be outside enforcement reach.

Reporting rules tighten from January 1, 2026

To strengthen oversight, reporting entities must now disclose crypto transactions under Rules 242 and 243 of the Income-Tax Rules, 2026, effective January 1. Officials have also proposed linking crypto ownership with PAN and introducing uniform valuation norms. These measures indicate a direction toward stronger information capture rather than broad-based legal recognition of crypto as a mainstream financial product.

Financial Intelligence Unit-India (FIU-IND) has also increased dissemination of operational and tactical analysis reports over time, signalling a stronger intelligence-led enforcement push. These OA/TA reports are used to identify patterns and typologies linked to illicit activity and to inform investigations.

Enforcement actions and “nudge” communications

Tax enforcement has also become more visible. The Income Tax Department intensified scrutiny by sending more than 44,000 tax notices to users who did not report VDA-related income or transactions, with 44,057 emails and text messages cited under the CBDT’s NUDGE programme aimed at voluntary compliance. The department has also undertaken focused reassessment drives and seized assets under the Income Tax Act, 1961, according to statements cited from Minister of State Pankaj Chaudhary.

The reported penalty framework is stringent. Failure to report crypto transactions can attract a 50% penalty on unpaid taxes, and if intentional misreporting is established, penalties can rise to 200% on tax understatements. Officials also reported that in FY23 and FY24, ₹705 crore was collected in reported crypto earnings, while enquiries found undisclosed earnings of at least ₹630 crore.

Where policy is headed: limited oversight vs regulation

A Reuters report from September 2025 said India appeared inclined to avoid comprehensive crypto regulation and opt for partial oversight, due to concerns that integrating these assets into the mainstream could elevate systemic risks. The same government document reviewed by Reuters noted that regulation could provide crypto “legitimacy” and potentially make the sector systemic. It also noted that outright prohibition could address “alarming” risks but would still struggle to manage peer-to-peer transactions or trades on decentralised exchanges.

Reuters also reported that India is engaging with cryptocurrency exchanges to evaluate the evolving trading landscape, including new crypto products. A senior tax official noted that crypto derivatives are currently not subjected to taxation and require further examination, adding that the government will proceed cautiously on such “sensitive transactions.”

Key facts at a glance

Enforcement and compliance metrics

Market impact and why this matters

The current posture from the RBI and tax authorities shapes how crypto businesses operate in India even without a single comprehensive crypto law. The RBI’s preference to restrict bank and institutional exposure contributes to a near halt in transactions between the formal financial system and cryptocurrencies, as described in the Reuters reporting. For exchanges and market participants, this increases reliance on compliance reporting, information sharing, and scrutiny from tax and intelligence agencies.

For retail investors, the practical implication is that trading may remain possible through registered exchanges, but with heavy taxation, tighter surveillance, and higher enforcement risk if disclosures are incomplete. For policymakers, the data gap between TDS coverage and income disclosures, and the focus on offshore and decentralised channels, underscores the enforcement challenges that will likely drive future decisions.

Conclusion

India’s digital asset policy remains a work in progress, but the direction signalled in internal documents and parliamentary discussions is toward containment and tighter restrictions rather than broad-based regulation. The RBI continues to frame prohibition as a viable policy option and wants the banking system insulated from crypto and privately issued stablecoins. Tax authorities, meanwhile, are focused on offshore monitoring gaps, reporting compliance, and enforcement against non-disclosure.

The next milestones will come from the parliamentary committee’s report and any clarifications around new products such as derivatives, alongside implementation and enforcement of reporting requirements under the Income-Tax Rules, 2026 from January 1.